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Better Buy: Organigram Holdings vs. CannTrust Holdings

Which of these Canadia marijuana stocks is more likely to deliver great returns over the long run?

Shareholders of Organigram Holdings(NASDAQ:OGI) and CannTrust Holdings(NYSE:CTST) have to be pretty happy with how the stocks are performing so far in 2019. Organigram is up more than 80% year to date while CannTrust stock has jumped nearly 50%.

The two Canadian marijuana producers share similar growth opportunities. But which of these two stocks is the better pick for investors? Here's how Organigram and CannTrust stack up against each other.

Image source: Getty Images.

The case for Organigram

You're not going to want to buy Organigram for its current revenue and profits. Actually, the company posted a loss in its latest quarter after achieving several quarters of profitability. But if you're looking for rapid growth and the potential for even more explosive growth in the future, Organigram could be right up your alley.

The company's gross revenue in fiscal 2019 Q2 skyrocketed 1,044% year over year to 33.47 million Canadian dollars. That's rapid growth in anyone's book. This impressive increase came primarily from Organigram's sales of adult-use recreational marijuana in Canada.

But the Canadian recreational market is still in its early innings. Organigram anticipates an opportunity to boost its revenue later this year with the expected opening of the market for cannabis edibles and beverages in Canada. The company is revving up for this market in one way through its partnership with Canada's Smartest Kitchen to develop premium cannabis-infused chocolate products.

There's an even larger opportunity in front of Organigram in international medical cannabis markets. Organigram has two deals in place that position it to compete internationally. The company teamed up with Alpha-cannabis to distribute its medical cannabis products in Germany, the most important cannabis market outside of North America right now. Organigram also has a purchase agreement with Serbian hemp producer Eviana that gives it access to hemp-based CBD for the European market.

The company appears to be in pretty good shape from a capacity standpoint. Organigram can currently produce around 62,000 kilograms of cannabis on an annualized basis. Its facility expansion initiatives should boost total annual production capacity to 113,000 kilograms later this year.

Organigram also has a wild card up its sleeve. It invested in Hyasynth, a small Canadian biotech that has developed a process for genetically engineering yeast strains to produce high-quality cannabinoids. The important thing to know about this approach is that it holds the potential to dramatically reduce the time and the costs for producing cannabinoids compared to current plant extraction methods.

The case for CannTrust

CannTrust was rocking along in 2019 with its stock beginning to trade on the New York Stock Exchange. Then the company reported its Q4 results. Investors weren't impressed -- and CannTrust's share price plunged. But despite this pullback, CannTrust still has a lot going for it.

Perhaps the biggest story for CannTrust is that it's rapidly ramping up its production capacity. Lack of supply was a big reason for the company missing analysts' revenue targets in the fourth quarter. CannTrust wrapped up its phase 2 expansion at the Niagara Perpetual Harvest Facility, thereby boosting its annual production capacity to 50,000 kilograms. Another expansion at the facility should increase that total to 100,000 kilograms by the second half of next year.

CannTrust is also taking the road less traveled (at least for most Canadian marijuana producers). The company plans to grow cannabis outdoors on 200 acres in British Columbia. CannTrust thinks its outdoor approach will enable it to produce between 200,000 and 300,000 kilograms of cannabis per year on top of its indoor production capacity. Its outdoor harvest will be used primarily for the extraction of cannabinoids used in beverages, edibles, and other consumer products.

The company lined up a partnership with Breakthru Beverage Group, Canada's top alcoholic beverage distributor, to distribute its products for the Canadian adult-use recreational cannabis market. In addition, CannTrust invested in National Access Cannabis, which plans to launch more than 200 retail cannabis stores across Canada.

On the international front, CannTrust has two key partnerships: It owns a 19.8% stake in Australian cannabis company CannaTrek, as well as 19% of Denmark-based Stenocare.

Better buy

Both of these marijuana stocks could have plenty of room to run. I think, though, that the advantage goes to Organigram for a couple of key reasons.

First, Organigram appears to be more attractively valued right now. Its market cap of roughly $1 billion is higher than CannTrust's market cap of around $750 million. But Organigram's revenue in the last quarter was more than twice CannTrust's revenue. Second, I like that Organigram already has a connection in Germany.

Organigram faces risks like any other marijuana stock. It's possible that cannabis markets across the world won't grow as quickly as investors expect. However, I think Organigram should continue to be a big winner over the long run.

Author

Keith began writing for the Fool in 2012 and focuses primarily on healthcare investing topics. His background includes serving in management and consulting for the healthcare technology, health insurance, medical device, and pharmacy benefits management industries.
Follow @keithspeights